Last Updated October 08, 2019

Law and Practice

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Winston & Strawn London LLP provides a wide range of legal services through its banking and finance practice, to public and private companies, leading financial institutions, multilateral and development finance institutions, private equity and investment funds, alternative funding sources, investors and emerging companies, on investment grade, leveraged and mezzanine financings. The firm advises on high-profile transactions and matters ranging from cross-border transactions, initial public offerings (IPOs) and project finance matters, to distressed acquisitions and creative “first-of-their-kind” financings. Clients include leading international funding sources which provide senior, subordinated, secured and unsecured debt, and hybrid (equity/debt) products, as well as institutional investors who regularly participate in senior debt markets, equity sponsors, and borrowers in both developed and emerging economies. Additional thanks to partners Ed Denny and Dan Meagher and associate Shaheer Momeni, among others, for their contributions to this chapter.

General

While the law summarised below relates to England and Wales only, the rules of Scots law and the laws of Northern Ireland do not differ materially from this. However, local counsel in the non-English jurisdictions of the UK should always be consulted to determine any differences in matters of detail.

In England, lenders will typically look to take security over all of a corporate obligor’s present and future assets, property and undertaking by means of a debenture (a form of security agreement). The debenture will generally include the following types and forms of security interests: 

  • a legal mortgage over real property; 
  • an assignment by way of security of bank accounts, any insurance policies and any material contracts; 
  • fixed charges over certain assets of the chargor’s (including its shares and investments, intellectual property rights, plant and machinery, cash deposit accounts and book debts/receivables); and 
  • a floating charge to cover the balance of the chargor’s assets. 

Where the English obligor owns assets outside of England and Wales, local law security is generally also taken. Where security is being taken from an English individual, that is granted on an asset-specific basis. Both fixed and floating security can be taken from an English corporate obligor, but an individual cannot grant floating security and charges over chattel are complicated. The composition of a security package will be a matter of negotiation between the borrower and the lender. 

The ranking on insolvency of fixed and floating security in England is different, with fixed security ranking ahead of certain preferential creditors, who rank ahead of floating security. However, to ensure an effective fixed security interest, the security holder must have control over security assets, both contractually and in practice. 

Perfection Requirements

The requirements for the formalisation of security interests are limited, and are confined to registering the security interest at a public register of security interests, delivery of applicable title and transfer documents (eg, share certificates and signed but undated stock transfer forms) and serving a notice of security to any relevant third party (in each case, if required). 

Specifically, pursuant to Section 859A of the Companies Act 2006 any mortgage or charge granted by a company or limited liability partnership registered in England and Wales must be registered at Companies House in the 21-day period beginning the day after the date of creation of the charge, or it will be void against a liquidator, administrator and any creditor of the company. Security interests created over UK registered land, intellectual property, ships or aircraft will also need registering on specialist registers for these asset types. Overseas companies are not required to register at Companies House any charge created by them on or after 1 October 2011.

While there are exceptions, a security interest over freehold and leasehold property located in England and Wales should generally be registered as soon as possible after the transaction at the Land Registry (registered land) or the Land Charges Department (unregistered land). Such registration is binding on a future lender or purchaser of the property. Although the security interest will not be void due to failure to register, if the security is not registered, an acquirer in good faith of the property can acquire title.

Security over UK patents, registered trade marks and registered designs should be registered at the UK Intellectual Property Office (IPO). Where security is taken over intellectual property registered in the European Union Intellectual Property Office (EUIPO), the security must be registered in the EUIPO as well.

Where security is taken over shares, it is usual for the chargee or security trustee to request changes to the constitutional documents of the company whose shares are being charged, to remove the directors’ right to veto a transfer of shares.

Searches for pre-existing security interests can generally be made electronically on the relevant online registry. As long as the secured creditor registers its security at the relevant register within the prescribed time, the security will be effective against other creditors, a liquidator or administrator with effect from the date of creation. 

Financial Collateral Regulations

The Financial Collateral Arrangements (No 2) Regulations 2003 exempt certain security over financial collateral, such as cash, financial instruments and credit claims (claims under loans made by credit institutions) from registration requirements. In practice, however, security documents creating these types of security interests are commonly still registered on the basis that if a purported fixed charge over such collateral is re-characterised as a floating charge, it may be deemed to have required registration and be void if registration was not made.

Costs Involved

In addition to legal and financial and other professional costs relating to due diligence and documentation, all registrations of security at Companies House will incur a fee of GBP23 (or GBP15, if filed electronically) in respect of each security document filed. The fee payable on registrations of security at the Land Registry will be assessed on the amount the mortgage or charge secures (between GBP40 and GBP250 per property, or GBP20 and GBP125 per property, if filed electronically), although special rules apply to the calculation of fees for more than 20 properties. All registrations of security at the IPO will incur a fee of GBP50 in respect of each registered patent, trade mark or design. 

Security over property is not liable to stamp duty land tax and there are no other notarisation or stamp fees payable when security is created.

Winston & Strawn London LLP

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EC2Y 9AW

020 7011 8700

+44 20 7011 8800

JeRobertson@winston.com www.winston.com
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Authors



Winston & Strawn London LLP provides a wide range of legal services through its banking and finance practice, to public and private companies, leading financial institutions, multilateral and development finance institutions, private equity and investment funds, alternative funding sources, investors and emerging companies, on investment grade, leveraged and mezzanine financings. The firm advises on high-profile transactions and matters ranging from cross-border transactions, initial public offerings (IPOs) and project finance matters, to distressed acquisitions and creative “first-of-their-kind” financings. Clients include leading international funding sources which provide senior, subordinated, secured and unsecured debt, and hybrid (equity/debt) products, as well as institutional investors who regularly participate in senior debt markets, equity sponsors, and borrowers in both developed and emerging economies. Additional thanks to partners Ed Denny and Dan Meagher and associate Shaheer Momeni, among others, for their contributions to this chapter.

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